UPDATE 2-Molycorp is developing new rare earth deposit

Tue Oct 4, 2011 12:50pm EDT

* Developing heavy rare earth deposit near Mountain Pass

* Exploring three other heavy projects, watching others

* Exec says not ruling out Rare Element's Bear Lodge

* Shares up 7.9 pct at $32.50 on NYSE

By Julie Gordon

Oct 4 (Reuters) - Molycorp (MCP.N) is developing a new deposit near its Mountain Pass mine in California that could enable the company to produce more of the valuable heavy rare-earth metals used in hybrid cars and wind turbines.

The project, which the company will announce at a conference in Washington on Tuesday, is the first of four new heavy rare-earth deposits that the company is exploring, its chief technology officer, John Burba, told Reuters.

In the past industry experts have raised questions about the Colorado-based company's reserve profile, saying it leaned too much on more abundant light rare earths.

Molycorp's stock rose 7.9 percent to $32.50 on Tuesday after the find was reported initially by The New York Times.

Exploration at the deposit is still in early stages, Burba said, adding that the overall grade is richer than average, at 4 to 6 percent, with high concentrations of terbium, dysprosium, europium and neodymium.

Heavy rare earths such as terbium and dysprosium are scarcer than cerium and other light rare earths, making them much more valuable.

"This deposit does not have the highest heavy rare earth distribution of the ones that we're looking at," he said. "But it is the one we were interested in right off because it is very close to Mountain Pass."

Prices of the individual oxides and metals have spiked as China, which produces some 95 percent of the world's supply, has repeatedly clamped down on exports.

Ore from the new project could feed directly into the processing facilities being built at Mountain Pass, said Burba, where Molycorp is in the process of a $781 million modernization and expansion.

A secure supply of heavy rare earths, used to make large permanent magnets for wind turbines and hybrid cars, would allow the company to move forward with a strategy to produce the entire rare earth chain, from mine to magnets.

"It's a pretty encouraging deposit," said Burba. "We're moving with great speed to get this thing defined and start processing."

While Molycorp continues to watch all rare earth projects being developed in North America and around the world, it is not working with any junior mining companies on the four deposits it is currently exploring, Burba said.

He listed overall grade, a high occurrence of heavies and location as the key factors in determining a project of interest, all criteria that would fit Rare Element Resources' (RES.TO) Bear Lodge deposit in Wyoming.

"I'm not going to rule out Bear Lodge," said Burba. "But I am going to say that we're focusing on the ones that are most interesting to us."

Rare earths are used to produce a range of green-energy technologies, including compact fluorescent light bulbs and hybrid-electric vehicles.

(Reporting by Julie Gordon)

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